India: The Politics of Budgeting

February 28 marks an important date in India’s parliamentary calendar. It is the day the central government presents its annual budget, which outlines the ruling party’s fiscal planning, economic priorities and political game plan for the year ahead.

The annual exercise is even more important this year with general elections scheduled for early 2014. The 2013 annual financial statement comes at a time when the Indian economy is experiencing a rough patch with annual growth being pegged at 5 percent, a large drop from the 7.6 percent recorded last year.

In his annual budget speech in parliament on Thursday, Finance Minister Palaniappan Chidambaram attempted to woo India’s women, youth and poor. These demographic segments of Indian society have spearheaded the nation’s anti-corruption movement in recent years and worked to raise the nation’s consciousness on issues surrounding the treatment and safety of women.

He also announced the launch of a special skill development scheme in which initial funds of U.S. $181 million will go toward skill development for youth. Some estimates suggest that 70 percent of India’s voters are less than 35 years old.

To secure the votes of India’s poor who have traditionally voted for the ruling Congress party, the Finance Minister announced a plan to expand the Direct Benefit Transfer Scheme. Through this scheme, cash is directly deposited into the bank accounts of those enrolled in lieu of subsidized products.

To raise additional revenue, Chidambaram also announced a surcharge on domestic firms with income of more than 100 million Indian rupees (U.S. $1.8 million). Meanwhile, individuals with taxable income of more than 10 million rupees will have to pay an additional 10 percent in tax.

From April 1 he also vowed to begin working to lower India’s fiscal deficit to 4.6 percent of the nation’s GDP, from 5.2 percent in the current financial year.

To inject new blood into India’s sagging economy, a special push will also be given to the infrastructure sector, for which 50 billion rupees has been earmarked for building ports and industrial corridors, and establishing a road regulator.

While some have praised the budget as “pragmatic” and “growth-oriented,” others think it lacks teeth. In the pre-liberalization era before 1991, the creation of the annual budget was largely viewed as an occasion to dole out incentives regardless of fiscal prudence. Now, more than two decades since India’s economic reforms, the annual budget remains a potent tool for influencing voters.

In 2008, the Congress-led United Progressive Alliance (UPA) government announced a loan waiver scheme for farmers, which was widely believed to be the game changer that returned the party to power in the 2009 elections. Chidambaram was the architect of the 2008 Budget.

The economic situation in 2008, however, was far more robust than it is today, with the country clocking growth rates of 8 to 9 percent. Today India’s GDP growth is puttering along at 4.5 percent, while its current account deficit is alarmingly high due to increased oil imports and declining exports. These factors limit Chidambaram’s room to maneuver in 2013.

Despite the hype surrounding this year’s budget, some economists feel that the Finance Minister has failed to push the reform agenda. Rajiv Kumar of the Centre for Policy Research writes: “Given that in our country a crisis represents the best opportunity for pushing forward with urgent and necessary reforms, he may have missed an opportunity to qualitatively improve economic governance including the delivery of public services and make the climate more investment friendly.”

On the other hand, political analyst Harish Khare argues in The Hindu that “the budget should reveal a government that is not just wedded to the idea of wholesome public interest but is also cognizant of its obligations to be the ultimate promoter and protector of the social good.”

Ultimately, what these assessments show is that most are reading more deeply into the politics than the economics of the budget for 2013. By targeting India’s rural areas, the poor, women and suburban population, the ruling Congress party has made its intention clear for the 2014 elections: To consolidate its core constituency rather than cater to the middle class.